How will you use your money??? Chapter 6

Budgeting By Bill Cosby

A fun strategy to get yourself in the habit of

saving…

…put $1/day in a piggy bank, sugar bowl or a specially marked tin for one month, then at the beginning of the following month, deposit the money in a savings account.

$1 a day = $365$2 a day = $730$3 a day = $1,095$5 a day = $1,825

What is a budget? A budget is a spending and savings plan

based on an estimate of income and expenses. Why??? Live within your means, save towards

goals, evaluate spending, financial records To analyze your financial situation, create

a personal balance sheet. Assets - Liabilities = Net Worth

Assets: Items of value that you own Liabilities: Debts/money you owe

6-2: Track Income and Expenses Fixed Expenses

Promise to pay on certain dates and in certain amounts

Examples? Rent, mortgage, property taxes, insurance

Flexible Expenses Vary in amount and usually in frequency

Examples? Luxury good, clothing, groceries, gas, heating bill

Budget Pitfalls Not planning for predictable expenses that

are not synchronized with your budget period.

Not being realistic in estimating the amount of expenses.

Not being specific enough in setting up budget categories. (lump under miscellaneous)

Giving up

Home 44.0%

Sample Family Budget

44.0%

9.8%

12.8%

5.0%

9.5%

5.2% 13.7%

Clothes 13.7%

Savings 5.0%

Entertainment 5.2%

Food 9.8% Utilities 9.5%

Car 12.8%

Planning for Financial Security Chapter 8

8-1: Why Save? Why should you save money?

Emergencies, Expensive Purchases, Recurring Expenses, Retirement, Special Goals

Techniques for Building Savings Set aside money for savings FIRST, then pay

your expenses. Save part (a percentage) of every paycheck. Reward yourself Payroll deductions - authorize a certain amount

to taken from each of your checks and transferred to another account.

Now that you are starting to save some money, where

should you put it?

Where should I put my money? 8-2: Savings Institutions and Accounts

Commercial Banks

Savings Banks

Savings and Loan Associations

Credit Union

Savings Accounts

Where should I put my money? 8-2: Savings Institutions and Accounts

Commercial Banks Serve individuals and

businesses Operate for a profit Offer full range of

banking services Pays interest (on most

accounts) Largest savings

institutions in the U.S.

Savings Bank Owned by it’s depositors Depositors earn dividends Offer wide range of

banking services

FDIC Insured (insures up to FDIC Insured (insures up to $250,000)$250,000)

Savings Institutions and Accounts Savings and Loan

Institutions Specialize in providing

funds to home buyers Offer complete line of

banking services During the 1980s, many

S&Ls failed and had to be closed by the government.

They are now insured by the SAIF. (Saving Association Insurance Fund)

Credit Unions Not for Profit Operates as a savings

and lending institution for it’s members.

Higher rates for deposits and low rates for loans.

Insured by the NCUSIF. (National Credit Union Share Insurance Fund)

Savings Institutions and Accounts Savings Accounts

Accounts offered by any banking institution in which you can deposit money.

Small deposit required…$50-$100 Earn interest Fees and restrictions

Teller fee ATM fee Withdrawal restriction NSF Fees

Where should I put my money?8-3: Save with Safety Certificates of Deposits

Interest Rate Fixed term

Minimum Deposit - usually $500 to $100,000

Early Withdrawal Penalties

Insured

Money Market Accounts Interest rate varies Bank uses the money to

make short-term investments

Minimum Deposit - $1,000 to $2,000

Can deposit and withdrawal as needed

Insured

Save with Safety Bonds

A bond is a promise made by a corporation or government to pay an investor a certain amount of money, plus interest, at a specified future time.

Similar to an IOU.

Types: Corporate Bonds Government Bonds

Save with Safety - Corporate Bonds

Corporate bonds Company makes interest

payment Less risky Smaller return

Junk bonds Businesses in trouble sell to

make money High-risk, High yield

Bond rating services Moody’s, Standard and Poor’s Evaluate company’s financial

state and rate them AAA safest – C or D riskiest

What does a savings bond look like?

How much is your bond worth??? Check it out at

www.ustreas.gov/kids